How to Buy a House with No Money

May 17, 2023

How to Buy a House with No Money

The dream of owning a home in San Francisco is shared among many people but also is a major financial commitment, especially with the challenge of saving for a down payment. However, there are ways to purchase a home with no money down. Below, we will discuss some of the options available to you so that you can begin your journey to homeownership. 

Whether you are a first-time homebuyer, facing financial constraints, or simply seeking alternative options, we will delve into practical strategies, creative solutions, and lesser-known opportunities to turn your homeownership aspirations into a reality, even without a considerable amount of savings. It is possible to learn how to buy a house with no money through careful planning and preparation.

Buying a home using government-backed loans

There are four main government-backed loan programs for homebuyers. The main program many first-time homebuyers utilize is FHA loans, while many veterans, service members, and surviving family members can use a VA loan. Two other loan programs are the Indian Home Loan Guarantee program for those of Native American descent, and USDA loans for individuals moving to areas that have been designated as being rural. 

FHA loans

The Federal Housing Administration (FHA) administers FHA loans, where the administration insures the loan so lenders can offer a better deal for the buyer. The benefits of an FHA loan are helping lower down payments (as low as 3.5%), covering closing costs, and easy credit qualification. 

In California specifically, an FHA-insured loan featuring a 30-year fixed interest rate first mortgage is the CalHFA FHA Program. Before applying for the loan, make sure both you, as the borrower, and the property you purchase fulfills the following requirements:

  • The property has to be the borrower's primary residence.
  • The borrower must complete a mandatory homebuyer's education course to obtain a certificate of completion through an eligible counseling organization.
  • The borrower must meet the income limits specified by CalHFA for this program.
  • The property must be a one-unit, single-family residence, which applies to approved Planned Unit Developments and condominiums.
  • Other possibly eligible properties include in-law quarters, guest houses, and granny flats.
  • Manufactured housing falls under the requirement list.
  • Condominiums must follow set guidelines for first mortgages.
If there are conflicting guidelines, the lender must adhere to the more restrictive requirement.

VA loans

VA Home Loans offer a range of benefits to current service members, veterans, and certain surviving spouses to help them achieve homeownership. By providing a home loan guarantee, VA works alongside private lenders, such as banks and mortgage companies, to offer more favorable terms to borrowers. The biggest VA home loan benefit is the no down payment requirement (though lenders may request it for some instances). Other benefits include competitively low-interest rates, limited closing costs, and exemption from Private Mortgage Insurance. This loan is a lifetime benefit, allowing you to utilize the guarantee multiple times.

Indian Home Loan Guarantee Program

Established by Congress in 1992, this program promotes homeownership and increases access to capital for Native Americans. The Indian Home Loan Guarantee program specifically applies to American Indian and Alaska Native families, tribes, villages, or tribal-designated housing entities. It offers low down payments and flexible underwriting, allowing borrowers to finance new construction, rehabilitation, home purchases, or refinancing on and off native lands. 

The Housing and Urban Development's Office of Native American Programs guarantees these loans, assuring lenders in case of foreclosure. To apply, borrowers work with a participating lender and, if applicable, consult with the tribe and Bureau of Indian Affairs for leasing tribal land. The loan is limited to single-family housing and fixed-rate loans up to 30 years, with maximum loan limits varying by county. This program is available to California residents.

USDA loans

The USDA's Rural Development's Single Family Housing Programs promote well-built and affordable housing in rural communities across the United States. These programs allow families and individuals to purchase, construct, or repair affordable homes in rural areas. Eligibility for loans, loan guarantees, and grants is income-based, varying according to the average median income of each specific region. 

There are various options and assistance available, ranging from zero down payment opportunities for purchasing or building a new single-family home to assisting in repairing existing homes or refinancing current mortgages under specific circumstances. Additionally, programs are available to assist non-profit entities in providing new homes or home repairs to eligible individuals and families, further contributing to the growth and well-being of rural communities.

Conventional 97 Loan

The Conventional 97 Loan is a viable option if you do not qualify for government-backed loans. With this loan, you make a 3% down payment while the other 97% of the purchase price is financed. This loan type is especially ideal for borrowers as, unlike other programs, it is available to any borrower regardless of income. The loans are available through Fannie Mae and Freddie Mac, including programs such as the HomeReady Mortgage and Home Possible mortgages. To qualify, you will need decent credit, a low debt-to-income ratio, and proof of long-term affordability. 

Fannie Mae HomeReady Mortgages

Another option worthy of researching is Fannie Mae HomeReady Mortgages, especially for anyone who is not a first-time homebuyer. There are similar benefits to FHA loans, including a low down payment (as low as 3%), closing costs, and insurance for lenders. Another similarity is the mandatory requirement for homebuyers to go through home education counseling before receiving their HomeReady Mortgage. 

Although the HomeReady Mortgage and FHA loans share a few similarities, the HomeReady Mortgage offers more flexibility to borrowers. One such case is the allocation of these funds during the home-buying process, along with being able to expand credit to non-occupant borrowers, such as the borrower's parents. Overall, if you are not a first-time homebuyer, or require more flexibility with the terms of your loan, Fannie Mae HomeReady Mortgages is a great program to consider.   

Freddie Mac Home Possible Mortgages

Another Conventional 97 Loan is Freddie Mac's Home Possible Mortgages. These mortgages offer flexibility similar to the Fannie Mae HomeReady Mortgages. However, Freddie Mac's Mortgages allow individuals who find themselves in situations such as waiting to sell their current home until they purchase their new home or those who are self-employed, to have an easier time buying a home.

Buying a home in San Francisco

Ready to embark on your home buying journey in the San Francisco real estate market with confidence and a touch of fun? Look no further than Pacific Edge Real Estate

As industry leaders with over 60 years of combined experience, the team at Pacific Edge Real Estate are not just experts in their field but are trusted mentors for first-time homebuyers. Real estate can be high stakes and stressful, but you can still enjoy the process. Take the first step today and contact Pacific Edge Real Estate to start the conversation.

*Header photo courtesy of Pacific Edge Real Estate

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